This still will help make history at Two James Spirits by producing legal liquor. / Andre J. Jackson/Detroit Free Press

When Two James Spirits fires up its 500-gallon, copper-clad still next month in Corktown and starts its first run of premium vodka, it will mark the first time since Prohibition that liquor has been made legally in Detroit.

Owners David Landrum and Peter Bailey — who named the distillery after their late fathers, both named James — have spent two and a half years negotiating a maze of federal, state and local laws and regulations, traveling across the country to learn the craft of distilling and investing $1 million to open a type of business “that’s so new, there’s no guide book for it,” Landrum said.

They’re joining a craft-distilling movement that’s quickly gaining momentum nationwide. The number of certified craft distilleries is expected to double to more than 1,000 by 2015, according to the American Distilling Institute.

“It’s happening right now,” said Landrum. “We are right in the thick of it.”

From a handful of distilling licenses five years ago, Michigan now has at least 31 licenses representing more than two dozen producers, an increase fueled both by major changes in state law and changing consumer values and tastes.

The state ranks sixth nationwide in distillery numbers and, by state estimates, distilling could add $400 million a year to Michigan’s economy. But the growth is just beginning, industry leaders said.

“There’s no reason that, if people do a good job at what they’re doing, we can’t keep growing,” said Kent Rabish, owner and president of the award-winning Grand Traverse Distillery in Traverse City.

“Just like people drive up to Traverse City to spend a weekend wine tasting, I can see whiskey folks coming to Michigan to tour our distilleries and sample whiskey,” he said. “I think it will happen. It’s just going to take a little time.”

The boom started after 2008, when Michigan passed a sweeping new small-distiller’s law, said Kris Berglund, a Michigan State University distinguished professor of food science and chemical engineering and an ag-bio-research scientist.

Under its provisions, a small-distiller’s license costs only $100 a year and allows producers to make up to 60,000 gallons of alcohol annually, have a tasting room where they can offer free samples as well as sell cocktails and bottles at retail, and use any raw material they wish to make their products.

The latter “put everything on a very even playing field, between the cereal-based products like whiskeys and fruit-based products like brandies and with vodka somewhere in the middle,” Berglund said.

Allowing tasting rooms to sell drinks and bottles on-site was crucial because it meant small producers could have “a reasonable retail operation without having to go into full distribution,” thus keeping more of their profits than if they had to sell only through distributors and outside retailers, Berglund said.

Another provision allows operators to have winery, brewery and distillery licenses for the same site, significantly reducing the capital investment and operating expenses of a stand-alone distillery.

“All of those things combined have conspired to improve the environment” for distilling, Berglund said. And at the same time, he added, “there’s just a general trend toward smaller-scale specialty products … that’s now hitting the spirits industry, too.”

Berglund, considered an industry guru, has worked with distilling since 1996 and helped create a coalition that included officials from government, academia, industry and agriculture to draft the law and get it passed. Other states are now looking at it as a model for encouraging craft distilling, Berglund said.

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His classes in the MSU Artisan Distilling Program attract students from all over the country. This fall, Berglund will coordinate the newly created Beverage Science and Technology specialization in the university’s Department of Food Science and Human Nutrition. The program — with classes in brewing, wine making and distilling — is designed to prepare students for work in the beverage industry.

Taking on big names

Landrum saw the craft-distilling movement coming over the horizon from his vantage point behind a bar.

The sommelier and craft cocktail bartender was making his own bitters, tonics and mixers, “so it was kind of a natural progression from that, to thinking, ‘What does it take to make your own spirits?’ … Because I was so close to the industry, I could see some people doing it,” he said.

One was Rabish, whose True North Vodka has been winning gold and double-gold medals in national and international competitions since 2008.

Landrum said Rabish influenced him. “I went up to Traverse City and visited the distillery all the time … and got a feeling for what craft distilling meant,” he said. To true craft distillers, it means making spirits on site from natural ingredients. Legally, though, small distillers can also buy spirits from other producers, refinish them by aging or adding other ingredients, and then bottle them under their own label.

Rabish regularly fields questions from newcomers like the Two James owners and said he’s “more than willing” to help beginners get started. “For craft distillers in Michigan, our competition isn’t other craft distillers,” Rabish said. “It’s the imported craft vodkas from overseas. … It’s the guys coming in from Europe with the big brand names” — names like Grey Goose, for example.

Proud to be American

To Rifino Valentine, owner of Valentine Distilling in Ferndale, Grey Goose is symbolic of the monolithic international brands that are the antithesis of craft-distilled spirits.

The founder, owner and master distiller at Valentine Distilling makes premium Valentine vodka, which has won multiple gold and double-gold medals since its introduction in 2009. But his most cherished honor came last year, when Anthony Dias Blue, editor of Tasting Panel magazine and one of the world’s top spirits professionals, gave it a 94-point rating — higher than international brands including Belvedere, Ketel One, Grey Goose and Absolut.

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Valentine, a former Wall Street trader, got into distilling after he “got on a dirty martini kick” and realized he was always being served imported vodkas. That offended him, especially because the companies he was trading on Wall Street were shipping American jobs overseas.

“Why can’t we make one of the world’s best vodkas in the U.S.,” with American labor and ingredients? he asked. And why not in his home state of Michigan? He came back with the goal of “making something that competes on a worldwide scale.” The Dias Blue ranking proves “that yes, we can do it here,” he said.

“I’m not going to be happy until not another bottle of Grey Goose is sold, at least in Michigan,” he said.

He prices his higher-rated Valentine at $30 a fifth, $2 less than Grey Goose, even though the import has economies of scale he will never have. “They spill more in a day than I produce in a year,” he said.

Costs of doing business

Price is an issue for craft distillers in Michigan, which has some of the highest liquor taxes in America. Producers said taxes and fees eat up about 65% of the shelf price of a bottle of liquor — no matter who makes it.

Rabish used his own True North vodka, which retails for $29.99, to illustrate the point. “I receive, for every bottle sold, $15.97 back from the State of Michigan,” he said. That means the state keeps $14.02; however, it gives 12%-14% of that amount to the retailer who sold the bottle.

“Out of my $15.97, I have to pay the feds $2.14 a bottle, which is your federal tax on spirits. Then you pay your distributor a distribution fee to deliver, plus a commission. Then you have to pay for the making of the product — the bottle, the grain, everything along the way, plus the equipment and overhead,” Rabish said. In comparison, a distiller in Chicago pays $3 a bottle in state tax, Rabish said.

But tax revenues aren’t the only way distilleries contribute to the state’s economy, Rabish noted. He buys 100% of his wheat, rye and corn from Send Brothers Farms, 10 miles from the distillery.

“This fall, we’ll hit 1 million pounds of locally grown agriculture going into the doors of our distillery. … The power of Michigan distilling really is using Michigan agriculture and doing it locally,” he said.